METROBANK v. LIBERTY CORRUGATED

METROPOLITAN BANK AND TRUST COMPANY VS.  LIBERTY CORRUGATED BOXES MANUFACTURING CORPORATION

G.R. No. 184317

January 25, 2017

Facts:

The Court of Appeals affirmed the Regional Trial Court's December 21, 2007

Order approving Liberty Corrugated Boxes Manufacturing Corp.'s rehabilitation plan.

Respondent Liberty Corrugated Boxes Manufacturing Corp. is a domestic corporation that produces corrugated packaging boxes.  It obtained various credit accommodations and loan facilities from petitioner Metropolitan Bank and Trust Company (Metrobank) amounting to Pl 9,940,000.00. To secure its loans, Liberty mortgaged to Metrobank 12 lots in Valenzuela City.

On June 21, 2007, Liberty filed a Petition8 for corporate rehabilitation before Branch 7 4 of the Regional Trial Court of Malabon City. Liberty claimed that it could not meet its obligations to Metrobank because of the Asian Financial Crisis, which resulted in a drastic decline in demand for its goods, and the serious sickness of its Founder and President, Ki Kiao Koc.

Liberty's rehabilitation plan consisted of: (a) a debt moratorium; (b) renewal of marketing efforts; (c) resumption of operations; and ( d) entry into condominium development, a new business.

On August 6, 2007, Metro bank filed its comment/opposition. It argued that Liberty was not qualified for corporate rehabilitation; that Liberty's Petition for rehabilitation and rehabilitation plan were defective; and that rehabilitation was not feasible. It also claimed that Liberty filed the Petition solely to avoid its obligations to the bank.

Rehabilitation Receiver Rafael Chris F. Teston recommended the approval of the plan, provided that Liberty would initiate construction on the property in Valenzuela within 12 months from approval.

In its December 21, 2007 Order, the Regional Trial Court approved the rehabilitation plan. Metrobank appealed to the Court of Appeals. On June 13, 2008, the Court of Appeals issued the Decision16 denying the Petition and affirming the Regional Trial Court's December 21, 2007 Order.

The Court of Appeals also found that the trial court correctly approved the rehabilitation plan over Metrobank's Opposition upon the recommendation of the Rehabilitation Receiver, who had carefully considered and addressed Metrobank's criticism on the plan's viability.

The Court of Appeals stressed that the purpose of rehabilitation proceedings is to enable the distressed company to gain a new lease on life and to allow the creditors to be paid their claims. It held that the approval of the Regional Trial Court was precisely "'to effect a feasible and viable rehabilitation' of ailing corporations” as required by Presidential Decree No. 902-A.

Issues:

1. Whether respondent, as a debtor in default, is qualified to file a petition for rehabilitation under Presidential Decree No. 902-A and Rule 4, Section 1 of the Interim Rules; and
2. Whether respondent's Petition for rehabilitation is sufficient in form and substance and respondent's rehabilitation plan, feasible.

Held:

1) Rule 4, Section 1 of the Interim Rules provides:

RULE4

Debtor-Initiated Rehabilitation

SECTION 1. Who May Petition. - Any debtor who foresees the impossibility of meeting its debts when they respectively fall due, or any creditor or creditors holding at least twenty-five percent (25%) of the debtor's total liabilities, may petition the proper Regional Trial Court to • have the debtor placed under rehabilitation.

Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation50 reiterates the purpose of rehabilitation, which is to provide meritorious corporations an opportunity for recovery: Under the Interim Rules, rehabilitation is the process of restoring "the debtor to a position of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan more if the corporation continues as a going concern that if it is immediately liquidated." It contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency.

2) The Interim Rules provide for a liberal construction of its provisions:

RULE2

Definition of Terms and Construction

SECTION 2. Construction. - These Rules shall be liberally construed to carry out the objectives of Sections 5(d), 6(c) and 6(d) of Presidential Decree No. 902-A, as amended, and to assist the parties in obtaining a just, expeditious, and inexpensive determination of cases. Where applicable, the Rules of Court shall apply suppletorily to proceedings under these Rules.

To adopt petitioner's interpretation would undermine the purpose of the Interim Rules. There is no reason why corporations with debts that may have already matured should not be given the opportunity to recover and pay their debtors in an orderly fashion. The opportunity to rehabilitate the affairs of an economic entity, regardless of the status of its debts, redounds to the benefit of its creditors, owners, and to the economy in general. Rehabilitation, rather than collection of debts from a company already near bankruptcy, is a better use of judicial rewards.

A.M. No. 08-8-1 O-SC further describes the remedy initiated by a petition for rehabilitation: A petition for rehabilitation, the procedure for which is provided in the Interim Rules of Procedure on Corporate Recovery, should be considered as a special proceeding. It is one that seeks to establish the status of a party or a particular fact. As provided in section 1, Rule 4 of the Interim Rules on Corporate Recovery, the status or fact sought to be established is the inability of the corporate debtor to pay its debts when they fall due so that a rehabilitation plan, containing the formula for the successful recovery of the corporation, may be approved in the end. It does not seek a relief from an injury caused by another party.